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Rebuilding Trust In Business: A Conversation With IACCM (I of II)

With a membership drawn from 90% of the 500 largest corporations in the world, The International Association for Contract & Commercial Management, or the IACCM, is about enabling organisations and professionals to achieve world-class standards in their trading relationships. It does this by aiding the market to better understand the complexities of contract management – which runs all the way from pre- and post-contractual matters like the review, drafting and negotiation of contracts to the monitoring of the performance of that contract until its close-out.

The document management community has been benefiting from the membership organisation’s many insights into the challenges of contract management, so we decided to sit down with the organisation’s President, Tim Cummins, to hear more about its work for thedmcollaborators audience.

thedmcollaborators Thanks very much for agreeing to speak to us, Tim. Can you give us a short introduction to the IACCM – how long you’ve been around, who are your members? What sort of job titles they have, for instance, and perhaps your mission statement?

Tim Cummins With pleasure, and it’s great to speak to the UK document management community, I really appreciate the opportunity. We are a non-profit association whose purpose is to improve the quality and the integrity of trading relationships. To do that, we focus on sharing contract management and trading relationship best practice. Notably, our members come from both sides of the buy-sell divide, which is important when trust levels are eroding and where many relationships are increasingly virtual. We embrace people from the procurement/supply management side, so a lot of our members will have titles like Director of Procurement or supply management professionals, but we will also have significant number of VPs or Directors of Commercial or Contract Management too. We do have other peripheral areas of work. We have 400 or 500 academics in our membership, for example, largely because of the extent of the research that we do. March 1999, I think, was IACCM’s formal incorporation date.
thedmcollaborators What is your relationship with lawmakers and the setters of international regulations and standards, I wonder?

Tim Cummins IACCM has started work with the World Economic Forum and we’re also working with NGOs like the World Bank, the International Monetary Fund, and governments around the world. That’s because contracting is increasingly understood to be something fundamental to world trade, and human trust. We’re dealing with this dynamic of the erosion of trust. And far too often today’s contracting practices add to that lack of trust. What many of these world bodies are interested in is turning that on its head, and making contracts instruments that actually create trust rather than undermine it.

thedmcollaborators So why is contract management a problem for British industry?

Tim Cummins Because they don’t do it very well. But firstly, I need to make clear that when we talk about ‘contracts’ and ‘contracting’, we’re talking about a lifecycle activity. Some people might think a term like ‘contract management’ would represent just the activities associated with the management of a signed agreement but our members are much more interested in the process through which that agreement gets created before it gets managed.

We keep finding that one of the reasons there’s a problem post-signature is because the right things have not been done in the pre-signature phase – that people have the wrong structure in place for the relationship that they’ve formed. A lot of criticism is coming to light about contracts in the retail industry or the unfair practices of the big corporates, like Google or Apple or others who simply impose terms and conditions on the market, which the supply chain can often feel are quite unbalanced.

And the consequence of that is that very often organisations are driving the wrong incentives and the wrong behaviours. Instead, contract management done well should be a lifecycle activity, where you need to give thought to the nature of the market or the organisation you are planning to contract with – ensuring that the terms and the commitments and the risk allocations involved are appropriate to the type of relationship, and hence the kind of result, you want to achieve. Our members’ position is that you need to create contracts that are intelligible – which, by and large, many companies do not do.

Obviously, you then need some mechanisms for overseeing the performance of that agreement, to guarantee you both work together to deliver whatever was promised. One of the reasons that it often is not done well is because organisations do not tend to think of contracting in an integrated way.

thedmcollaborators What does that look like on the ground?

Tim Cummins Not enough businesses have designed their contracts to be relevant to the environment in which they’re doing business. Plus, they have no technology support for the management of those contracts, so the flows of data within the organisation important to the performance of a contract don’t exist. It’s very hard for people to find and access information, but one of the critical things with contracts is that, of course, they span organisational borders and boundaries. In other words, the contract is helping both parties to have shared understanding of what they’re doing to each other and how they’re going to do it. Too many contracts fail to have that relevance and to operate with that purpose.

thedmcollaborators I’m interested in what the role of technology you allude to could be in that picture?

Tim Cummins With no underpinning technology to really support or measure contracts, the data around their performance is often too difficult to acquire.

thedmcollaborators OK – but does this all really matter if it doesn’t affect my costs that much?

Tim Cummins Of course, if you don’t have a process to monitor the cost for lost revenue opportunity, then of course, you’ve not got the method of collecting the data to actually give you the evidence. And that’s the sort of catch-22 that organisations are often in today – because they don’t have any proper oversight, they don’t have any clue as to whether it’s costing them money.

thedmcollaborators What are you doing at IACCM to help?

Tim Cummins We’ve focused on two things. One is trying to get hard numbers on the cost of poor contracting, as well as looking at what the major causes of that cost tend to be. I’ll give you some statistics which are across industry averages; they’re not specific to the UK, but all the evidence suggests that they would be equally true for the UK. The figure derived is that the value lost as a result of poor contracting is the equivalent of 9.2% of annual revenue – the erosion that’s occurring on both your procurement contracts and your sales contracts.
thedmcollaborators That’s astonishing!

Tim Cummins Yes it’s an enormous amount of money. And that value erosion comes in on both the revenue side and the procurement side. Very often, one of the biggest causes is the fact that contracts don’t align well with your overall business model. One of the biggest causes of value erosion is because businesses have moved more and more towards the sale or the purchase of services, whether it’s things like software as a service or goods as a service, or it’s the scale of their outsourcing activities.

More and more of the transactions that we’re engaging in today are services transactions. But if you have a services transaction, it’s an intangible; you only know whether it’s working once it’s happening. And that makes the definition of your requirement a lot more difficult. It’s a bit like if you hire someone to clean your house – how are you going to define precisely what your expectation level is of the service that they’re going to provide? What words, what expression would you have used to make sure that they were clear about your expectation? How would you measure them on that expectation? How would you manage changes in your expectation?

Maybe today you’re just living there by yourself, but two years from now you’ve got a partner and a baby. Your requirements would probably alter. And organisations are just not good at managing that kind of definition of the scope of a service they need and those dynamics. And of course, when you get that wrong, it tends to start causing levels of contention and disagreement: was this part of what you expected or not? Was is reasonable that you expected it? Is there an additional price to be paid? Are you prepared to pay that additional price?

Too often, lack of quality in definition, lack of quality in change management and the re-definition and re-negotiation process leads to a lot of contention, inefficiency, disagreement, disappointment, et cetera. And that’s one of a range of fields we’ve identified that lead to that loss of value.